Peru. Francisco Arca Patiño and Carla Paoli Consigliere. Estudio Arca & Paoli Abogados SAC

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1 Peru Francisco Arca Patiño and Carla Paoli Consigliere General 1 Which are the key ports in your jurisdiction and what sort of facilities do they comprise? What is the primary purpose of the ports? The Peruvian port system has more than 100 port facilities, which are classified as marine, river and lake ports. In spite of such port facilities, maritime commerce in Peru is mainly concentrated on eight major coastal ports: Callao, Talara, Paita, Salaverry, Chimbote, San Martín (Pisco), Ilo and Matarani. Among these ports, Callao is the most important in terms of cargo movement since 70 per cent of the total cargo in Peru is loaded and discharged in this port. In addition, it has positioned itself as a regional hub, considered the most important container transshipment port on the west coast of South America. The major private maritime ports and terminals in Peru offer the following facilities, from north to south: Port of Talara (operated by Petroperu). This is a pier for loading and discharging various types of fuel such as oil liquid cargo, including industrial fuels and liquefied petroleum gas (LPG) and one buoy for the discharge of dirty products. Port Terminal of Paita (operated by TPE). It mainly loads and discharges agricultural, natural and frozen products, as well as grain, minerals and fishing products. Pier of Bayovar (operated by Valle Do Rio). This is a pier for the loading of phosphates and other minerals. Port of Salaverry (operated by ENAPU). It consists of two piers; one for general cargo and the other for sugar and ethanol. It also contains a multi-buoy terminal (operated by Petroperu) for liquid cargo. Piers of Chimbote (operated by Siderperu). Two piers for the loading and discharge of iron ore, coal and steel. Pier Punta Lobitos (operated by Antamina) specialises in bulk cargoes such as concentrate of copper and zinc. Port of Callao. It contains four terminals and berths and specialises in containerised cargo and general cargo such as metals, grains, fertilisers and chemicals, coal, vegetable, fish oil, machinery, mineral concentrates, hydrocarbons, liquid and gas carbon. DP World Callao operates the south terminal, and APM Terminals operates the north terminal and Pier 7, which specialises in hydrocarbons. Finally, Transportadora Callao SA is in charge of the mineral pier located at the northernmost side of the port, which has access via a railway and consists of an isolated belt of 3.1 km. Pier of Conchan (operated by Cementos Lima). Its main activity is the export of cement and the import of coal. Multi-buoy Terminal of Conchan (operated by Petroperu). Its main activity is the coastal trade of oil cargo and industrial fuels. Pier of Melchorita (operated by Peru LNG). This is a gas liquefaction plant which is the first of its kind in South America for the export of liquid natural gas (LNG). Off-shore terminal of Camisea at Pisco (operated by Pluspetrol). Its main activity is the coastal trade of LNG and white and dirty oil cargo, as well as some exports of Naftas. Port of San Martin Pisco (operated by Terminales Portuarios Paracas). Its main activity is scrap and bulk, general cargo, containers, machinery, grain/maize silk in bulk and fishmeal. Pier San Nicolas (operated by Shougang Hierro Peru) specialises in bulk cargo (iron ore concentrates) and liquid cargo (diesel). Port of Matarani (operated by TISUR). This port facility has access via road and rail. This is a port for loading and discharging grains and minerals. Port of Ilo (operated by ENAPU). Its main activity is the import and export of cargo in pallets and containers. It is mainly used for serving Bolivia. There is also a pier operated by Southern Peru Copper Corporation. Its main activity is the coastal trade of liquid cargo (chemicals) and the export of copper concentrates. 2 Describe any port reform that has been undertaken over the last few decades and the principal port model or models in your jurisdiction. The main port reform undertaken by the government is applied through the Law of the National Port System, modified by Legislative Decree No. 1022, which entered into force in It was enacted in order to modernise the Peruvian Port System, promoting private sector investment in port infrastructure. Further, this law provides a new legal and regulatory framework that guarantees legal certainty and stability to a booming sector. In this regard, there are substantial reforms such as the creation of the National Port Authority (APN), which is a public entity ascribed to the Ministry of Transport and Communications. It was created to promote private investment in ports, improve port infrastructure and design a new model of port services. Both the public and private sector port models apply in Peru. Peru cedes the administration of its ports by means of a concession contract in favour of the private sector. 3 Is there an overall state policy for the development of ports in your jurisdiction? Peru has a National Port Development Plan, which was enacted by means of Supreme Decree No on 11 August This official document focuses on modernising infrastructure and services to bring them up to the levels necessary to allow the country to compete internationally. The framework includes putting in place national and regional port authorities, and issuing regulations clarifying the working relations between these authorities, the Ministry of Transport and other relevant regulatory agencies. Furthermore, the Law of the National Port System establishes, among other things, the following port policies: the promotion and planning of competitive port services and national, regional and international trade; the promotion of coastal trade and multimodal transport; the promotion of activities to offer aggregate value to the services provided by port facilities; the protection of the environment; and the preservation of the national port heritage. 4 What green port principles are proposed or required for ports and terminals in your jurisdiction? There are no green port principles or regulations in the Peruvian legal framework. 1

2 Legislative framework and regulation 5 Is there a legislative framework for port development or operations in your jurisdiction? Apart from the Law of the National Port System and the National Port Development Plan, there is the Law of PPP dated 25 September 2015 (Legislative Decree No. 1224) and its regulations. These rules set out the classification of, among other things, PPP, financial and non-financial guarantees, private finance initiative, rates of return and proceedings regarding the declaration of interest of private initiatives. 6 Is there a regulatory authority for each port or for all ports in your jurisdiction? OSITRAN is the agency that controls the execution of the port concession, including the regulation of tariffs as well as deciding claims on appeal by port users against the corresponding ports. Peruvian regulations also provide shared functions to the APN and the General Directorate of Captaincies (DICAPI) for the monitoring and surveillance of national ports. These institutions regulate the applicable policies at national level, but nonetheless, the execution of these policies is performed through the regional port authorities and port captaincies. 7 What are the key competences and powers of the port regulatory authority in your jurisdiction? The APN establishes their main competences as follows: carrying out the strategy for public investments and inviting private investors for the development of port services; promoting concessions of port facilities to the private sector and protecting the interests of port users; coordinating the integration of port terminals, infrastructure and port facilities into the national port system, and promoting its development; and promoting the modernisation of ports and the preservation of the environment. OSITRAN regulates the execution of the concession and the port tariffs. 8 How is a harbourmaster for a port in your jurisdiction appointed? The institution in charge of designating harbour masters for each port is DICAPI, the Maritime Authority in Peru. The harbour master must be a navy officer specialised in coast guard activities. 9 Are ports in your jurisdiction subject to specific national competition rules? All Peruvian ports are regulated under the Law of the National Port System dated 1 March 2003, and its regulations. 10 Are there regulations in relation to the tariffs that are imposed on ports and terminals users in your jurisdictions and how are tariffs collected? Yes, the tariffs are subject to regulation. The collection method of these tariffs are as per the internal rules of each port or terminal. 11 Does the state have any public service obligations in relation to port access or services? Can it satisfy these obligations through a contract with a private party? As established in concession agreements, the state provides facilities in order to allow appropriate port access via land or sea. In such contracts, the state and the private entity agree to cooperate in order to provide safe access to the port. 12 Can a state entity enter into a joint venture with a port operator for the development or operation of a port in your jurisdiction? Is the state s stake in the venture subject to any percentage threshold? No. The state has no participation in the administration or operation of any port or terminal in a joint venture model. However, some port facilities are administrated by the National Company of Ports (ENAPU). The participation of ENAPU as a national port operator has decreased over the years, as the current port policy of Peru is to cede its ports and terminals to the private sector. 13 Are there restrictions on foreign participation in port projects? No. However, at present there is no longer a need to register in the National Register of Suppliers. Public procurement and PPP 14 Is the legislation governing procurement and PPP general or specific? Legislative Decree No. 1224, which derogated Legislative Decree No. 1012, approves the Public Private Partnership Law, is mainly of general character and is applicable nationwide. 15 May the government or relevant port authority consider proposals for port privatisation/ppp other than as part of a formal tender? The Peruvian government accepts private investment proposals that are not part of an existing formal tender, through the National Agency of Promotion of Private Investment (Proinversion) created by Supreme Decree No PCM, in order to promote the competitiveness of Peru and sustainable development. If interest is declared, Proinversion is instructed to analyse the proposal and liaise with the party and the sector in order to determine the definitive interest of the latter in the original proposal or a revised alternative. Only the Ministry of Transport may declare its definitive interest (with a declaration of interest) after a period of time and a comprehensive assessment. If so, the law provides for a term of 90 days for third parties to file alternative proposals. If there is more than one competitor with a project proposal for or on a given port, Proinversion launches a process (ie, bid terms and contracts) according to the regular terms for any PPP public initiative. If there are no competitors after 90 days, the project is awarded to the original proposer party directly. A PPP proposal can be submitted by any public entity of the three levels of government (national, regional and local), in which case it is called a PPP by public initiative, and also by any private investor who submits a project to Proinversion or the private investment promoting entities in regional or local governments. For instance, the government is presently evaluating private proposals for operating the ports of Salaverry, Ilo and Chimbote, which are now administrated by ENAPU. These three ports will be granted in concession in 2016 to the companies that manifested their original interest. However, if there are more proposals to each port afterwards, a public process for granting a concession will have to be launched by Proinversion. 16 What criteria are considered when awarding award port concessions and port joint venture agreements? Concessions have a self-sustaining nature, so the basic criterion for the awarding of port concessions and joint ventures is that they comply with the terms and conditions of the public tender. Generally, the rules of a public tender are focused on the infrastructure design, the shape of the construction, financing, and the operation of infrastructure and port equipment. 17 Is there a model PPP agreement that is used for port projects? To what extent can the public body deviate from its terms? According to the Public Contracting Law and its regulations, a PPP is construed as a concession agreement. Supreme Decree No EF, which derogated Supreme Decree PCM, and the Text of Concessions provide that the state cannot deviate from the duties agreed in the concession contract. In case of disputes, an arbitration clause is always set out in the agreement. In connection with the above, Law No regulates the system of coordination and response of the state in international investment disputes. The main objective is to establish compensations for the investor in case of breach of obligations or fines or compulsory acts, or even to put an end to the concession if necessary. 2 Getting the Deal Through Ports & Terminals 2017

3 18 What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Must any specific law be passed in your jurisdiction for this? The APN is the entity which promotes the participation of the private sector regarding investment in the infrastructure s development and port equipment, and has the support of Proinversion. In this regard, the APN is responsible for coordinating the promotion processes for private investment in national port infrastructure and equipment, and proposed cooperation agreements with Proinversion. No specific law must be passed. The concession enters into force once the agreement is duly signed by the state and the private investor. 19 On what basis are port projects in your jurisdiction typically implemented? Port projects in our jurisdiction are typically implemented as design finance build operate transfer (DFBOT). 20 Is there a minimum or maximum term for port PPPs in your jurisdiction? What is the average term? Article 19 of Legislative Decree No does not establish a minimum term for concession agreements for the private sector in public works of infrastructure and services in general, but requires that the term should not exceed 60 years. The average term of concession contracts for infrastructure development is 30 years. 21 On what basis can the term be extended? The extension of the concession is determined only by the clauses incorporated into the agreement. 22 What fee structures are used in your jurisdiction? Are they subject to indexation? In Peru, the port concession is self-sustaining and the fee structure is based on a percentage of revenue shares. The concession agreement includes a scheme of price realignment through economic formulas that are set out in that contract. 23 Does the government provide guarantees in relation to port PPPs or grant the port operator exclusivity? The government provides guarantees with regard to compliance with the obligations agreed under concession agreements. Regulation establishes that the state provides investors with legal certainty in the context of free competition, non-discrimination and equality before the law, neutrality and price transfer prohibition. Usually, the formal tender sets clauses exclusively in favour of the party to whom the concession has been granted (the concessionaire). In order to improve a project s risk profile and promote private investment, the government may establish the following types of guarantee: financial guarantees: unconditional, immediately executable guarantees given by the government to support the obligations of the private sector and derived from loans or bonds issued to finance PPP projects or support the government s payment obligations; and non-financial guarantees: guarantees established in the contract, derived from risks inherent to a PPP project. Port development and construction 24 What government approvals are required for a port operator to commence construction at the relevant port? How long does it typically take to obtain approvals? To begin the construction of a port, authorisation is required from national and local entities, specifically from the APN, DICAPI and the district municipality s home port. The estimated time for obtaining permits, licences and authorisations is approximately three months from the date of filing the application. 25 Does the government or relevant port authority typically undertake any part of the port construction? No, the Peruvian government does not undertake any part of the construction of the port. The development of port infrastructure and equipment is the obligation of the concessionaire in accordance with the clauses established in the concession agreement, as governed by Peruvian law. 26 Does the port operator have to adhere to any specific construction standards, and may it engage any contractor it wishes? The port operator or concessionaire must comply with the terms and references established in the bases of the public tender, which are part of the concession agreement. The port operator may engage the services of any contractor they wish. 27 What remedies are available for delays and defects in the construction of the port? The remedy available for delays and defects in the construction of the port is the execution of the penalties laid down in the concession agreement and, additionally, in the provisions of the Peruvian Civil Code. In the concession agreement, the parties should establish the penalties for breach of obligations. The penalties may vary according to the clause breached by the port operator. Port operations 28 What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals? The agencies responsible for granting permits for port operators are the APN and DICAPI. The permits that should be obtained are as follows: a permit for temporary use of the water area or coastal land for port entitlements; the granting of a port concession; an inspection request for a percentage of work completion and the corresponding certificate; and an inspection request for work completion (100 per cent) and the corresponding certificate. The process for obtaining these permits usually takes around 60 days, according to the Text of Administrative Proceedings of the APN. However, due to the usual administrative burden, these proceedings may take about 90 days. 29 What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services? A port operator and the port authority can provide the following services: basic port services: fuelling, storage, docking and undocking of ships, supplies, diving, piloting, waste collection, towing, passenger transport, loading and discharge of cargo; and general port services: port traffic control, cleaning, sweeping, lighting, signalling, safety and security. Apart from these services, where the state may cooperate with the private investor, the government may make the following commitments: Definitive commitments These are the payment obligations assumed by the government as a consideration of the activities established in a PPP contract. They include the payment of: periodical installments to compensate for the investments incurred by the private sector. In practice, they are called annual payment for works or retribution for investments ; and periodical investments intended to compensate for operation and preservation costs incurred by the private sector for the provision of the service. In practice, they are called annual payment for maintenance and operation or retribution for maintenance and operation. 3

4 Contingent commitments These are the potential payment obligations of the government to the private sector for the financial and non-financial guarantees that the latter may have issued. Definitive and contingent commitments are usually included in concession contracts, in order to cover the risks inherent to the project. On the other hand, the APN can charge the port operator for the basic port services, as long as this has been agreed in the concession contract. 30 Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections? No, the government and the APN rarely grant commitments in relation to access to the hinterland. In most cases, the APN and the Ministry of Transport and Communications do not include a section regarding finance development of access routes or interconnections in the concession agreement. 31 How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them? In Peru, the authority which oversees the operations at port terminals is the APN. As established in Supreme Decree No EF, which regulates the delivery of concessions to the private sector in public infrastructure and public services, the concessionaire can be suspended due to the following reasons: in case of foreign war, civil war or force majeure preventing the implementation of the work or service; when a partial destruction of the work or its elements occurs, so that it is impossible to use it as stated in the contract; any cause agreed in the concession contract; by fundamental contractual breach by the state; or unilateral termination by the state due to public interest. It should be noted that the suspension extends the term of the concession for the period of the suspension cause. 32 In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations? As established in Supreme Decree No EF, a port terminal concession will expire on the following grounds: by the deadline agreed when the concession was awarded; for the fundamental breach of the concessionaire s obligations, which constitute grounds for termination of the contract; by agreement between the state and the concessionaire; by the complete destruction of the work; or for other causes stipulated in the contract. 33 What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed? The resource available for the port authority to act against the port operator when they fail in the operation and maintenance of the port, as agreed between the parties in the concession agreement, is the execution of the penalties set out in such agreement and, additionally, in the provisions of the Peruvian Civil Code. The state may also submit financial controversies arising from concessions to national or international arbitration, in accordance with the provisions of article 69 of the Political Constitution of Peru. 34 What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets? At the end of the concession, port operators must transfer to the state all goods that have become integral parts of the concession and receive compensation for the assets transferred, according to the clauses of the concession contract. Miscellaneous 35 Is a port operator that is to construct or operate a port in your jurisdiction permitted (or required) to do so via a special purpose vehicle (SPV)? Must it be incorporated in your jurisdiction? The port operator is permitted to use a special purpose vehicle (SPV) in DFBOT contracts, as a newly incorporated company or as a subsidiary company. Both types of company should be incorporated in the normal way under the system of project finance used by a private financier for the PPP. The DFBOT contracts provide the SPV with the project components to be managed (such as raising funds; paying debts and shareholders; hiring and supervising the builder). Then the SPV should build, operate and transfer the project to the state. The SPV must be incorporated in the Peruvian jurisdiction. 36 Are ownership interests in the port operator freely transferable? According to the provisions of the law, the concessionaire, with the approval of the state, may transfer the concession, with the same terms and conditions, to another entity. In other words, the transfer will be complete and all the rights and obligations of the transferor will be passed to the new concessionaire provided that it is authorised by the state. 37 Can the port operator grant security over its rights under the PPP agreement to its project financing banks? Does a port authority in your jurisdiction typically agree to enter into direct agreements with the project financing banks and, if so, what are the key terms? The port operator cannot mortgage its rights under the PPP agreement. The port authority does not enter into agreements with the projectfinancing banks. 38 In what circumstances may agreements to construct or operate a port facility be varied or terminated? According to the provisions of the legislation, it is the prerogative of the state to modify the concession contract when necessary, in compliance with the nature of the concession, the economic conditions and the contractual technical agreements, and the financial balance performance by the parties. 39 What remedies are available to a government or port authority for contractual breach by a port operator? If the concessionaire fails to comply with the provisions of the concession agreement, in accordance with the provisions of the law, the state is entitled to terminate the concession for breach of its obligations under the concession agreement and they will enforce the penalties established therein. For example, in the concession agreement the parties can stipulate penalties for the following reasons: for a delay in presenting the technical file to the APN; for delays in the initiation of the construction operations of the port; for delays in remedying technical file observations; and for delays in the delivery of the concession. The concession agreement must have a section in which the parties stipulate penalties for the breach of the obligations of the port operator. 40 Must all port PPP agreements be governed by the laws of your jurisdiction? PPP agreements are governed under the rules of the Peruvian jurisdiction, with respect to the rights and obligations under the contract. The parties may also submit disputes arising from the concession agreement to an arbitration forum, in accordance with the provisions of the law. PPP agreements must be governed by Legislative Decree No.1012, Supreme Decree No EF, by the specific regulations on concessions and port systems and the provisions of the Peruvian Civil Code. 4 Getting the Deal Through Ports & Terminals 2017

5 Update and trends The new berth F located at the Bay of Islay in Matarani is a project under construction. It is designed to provide for the reception, storage and shipment of minerals concentrate. It is a private investment involving Mineral and Metals Group (MMG), which is in charge of the Las Bambas mining project; Freeport McMoran Inc, which operates the Cerro Verde mine; Glencore, which is in charge of the Antapaccay copper mining project; and TISUR, which is the port operator at Matarani. This project will apply a modern system of shipment of minerals concentrate with a capacity of 2,000 tons per hour, and will be able to receive 55,000 DWT Supramax Bulk Carriers. In such a context, this new berth F will be capable of exporting 10 per cent of the world production of copper concentrates: almost 18 million tons. Hence, the Port of Matarani will also be positioned as an international hub. On 25 September 2015 the PPP law was derogated by Legislative Decree 1224, which is now in force. 41 How are disputes between the government or port authority and the port operator customarily settled? Disagreements between the parties are commonly solved by arbitration, under the rules incorporated into the concession contract. If, under the concession contract, the parties agree to solve the disputes of the concession agreement according to Peruvian law, then the terms and regulations of Arbitration Law No will apply. Supreme Decree No EF, which regulates the Law of PPP, stipulates the disputes that can be solved under arbitration. Further, in this Law it is stated that the tribunal must be made up of professional experts with a minimum of five years experience in controversial matters, or a lawyer with experience in regulations or concessions. Francisco Arca Patiño Carla Paoli Consigliere Calle Virtud y Unión (ex Calle 12) No. 160 Urb Corpac Lima 27 Peru farcap@arcalaw.com.pe cpaolic@arcalaw.com.pe Tel: Fax: